Look for silver lining in gold ETF success

23 Dec

Gold ETFPerhaps, no one watched the events of the past week more closely than the “silver barons.”

As streetTRACKS Gold Trust reaped $1.3 billion in its first three days of trading, and set a volume record for derivatives on its opening day, one can bet the minds of these pure silver company CEOs were chomping at the bit to unveil next generation of commodity-backed ETFs.

The silver ETF is definitely coming, and may even make its debut early next year. Silver producers are fairly tight-lipped at this point because of a “quiet period” as the proposal is being drafted to submit to the SEC. One thing is for certain, however, the first U.S. silver-ETF is not going to be a clone of the World Gold Council gold ETF model.

Unlike their major gold company brethren who comprise the membership of the World Gold Council, the modern silver kings are genuinely comfortable directly promoting their silver stocks to retail investors. And, the small retail investor may find the lower price of a silver ETF stock far more appealing then its upscale gold predecessor.

Therefore, if a gold ETF is trading like gangbusters at around $44.75 or roughly one-tenth the price of gold bullion, imagine what a silver-backed ETF could do at 74-cents? The introduction of the gold ETF has definitely attracted new interest in gold. It is realistic to consider that folks who may have never considered investing in gold stocks or in physical gold might actually be willing to dip a toe into a silver ETF.

Folks who are loathe to hoard or pay for the storage gold bullion, probably are just as reluctant to keep silver bars under the mattress. Therefore, the ordinary investor who can now buy, sell and own gold bullion without having to take delivery, might be willing to put their few precious extra dollars into silver bullion.

Thanks to the World Gold Council’s pioneering work on the Equity Gold Trust, silver producers, basically, already have the road cleared for them. The World Gold Council is in the midst of a strong media campaign to promote the gold ETF. This in turn, could help backers of a silver ETF. However, the Washington, DC-based Silver Institute doesn’t possess the same budgetary resources to emulate the World Gold Council’s approach. So, it would make sense that the silver producers might choose another ETF model.

Meanwhile, there are some stumbling blocks faced by commodity-backed ETFs. Admittedly, a stock-based index or mutual fund doesn’t have to pay for storage and handling costs for a commodity. The American Stock Exchange recently created a new index of gold stocks. Meanwhile, Barclays Global Investors is awaiting SEC approval to come out with their own brand of gold-based ETF.

Another concern remains the taxation of gold and silver bullion. Nevertheless, both the House and the Senate introduced measures in the current session of Congress to amend the Internal Revenue Code of 1986 to treat gold, silver, and platinum, in either coin or bar form, in the same manner as stocks and bonds for purposes of the maximum capital gains rate for individuals. With Senate Minority Leader Harry Reid, D-Nevada, now in charge, a strong possibility exists that something may finally be enacted in the new session of Congress. Meanwhile, Rep. Jim Gibbons, R-Nevada, a geologist and attorney, continues to gain seniority and committee clout in the House.

The pure silver producers are renown for trying new approaches and/or fine-tuning what has worked for their larger major gold counterparts. Silver prices have been looking for awhile, giving them further impetus to try other marketing tools to increase silver consumption.

So do not be surprised to see if a silver ETF helps ring in a new year for metals investors.

By Dorothy Kosich

Source: MineWeb

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